Y Combinator

Y Combinator was started in 2005 by Paul Graham, Jessica Livingston, Trevor Blackwell, and Robert Tappan Morris. Y Combinator pioneered a new model for funding startups. Its major innovations include funding companies in batches, giving standardized terms, and having weekly dinners that culminate in Demo Day to a group of investors. The firm was originally funding startups in Cambridge, MA, for its summer batch before moving both summer and winter batches to Mountain View, CA.

Y Combinator’s motto is "Make Something People Want." The program aims for company founders to develop their products, teams, and markets; refine their business models; achieve product/market fit; and scale their startups into high-growth businesses.

YC focuses on investments in B2B software and services, education, consumer healthcare, real estate and construction, financial technology, industrials, and government sectors.

The YC's program runs two batches each year, with the first in winter, from January through March, and the second in summer, from June through August. During the three months of the program, founders participate in group office hours every two weekends and can meet with partners for office hours as needed. Further, there are weekly talks, where an expert on some aspect of startups speaks to the group. These speakers tend to include startup founders, venture capitalists, and executives from well-known technology companies.

Ten weeks in, the program culminates with Demo Day, an event where startups present their business to a selected audience of investors. Y Combinator has invested in over 1,000 companies as of 2021, which include Dropbox, Airbnb, Coinbase, Stripe, Reddit, Zenefits, BuildZoom, Instacart, Twitch.tv, Machine Zone, Weebly, Paribus, and Chinese startup Raven Tech. Nonprofit organizations can also participate in the main YC program.

For companies participating in a batch, Y Combinator invests $125,000 in return for 7 percent equity based on a "post-money" Simple Agreement for Future Equity, also known as the YC SAFE. This is partially based on Y Combinator's belief that $125,000 is the right amount of money for founders to run their company for around five to six months, if not longer. In the case of a nonprofit organization, Y Combinator provides a $100,000 donation, for which it does not receive anything in return.

YC prefers to focus on investments in batches as the firm finds it works better for everyone. For the firm, it provides a more efficient way of investing in and working with companies, and for the startups, it offers them an opportunity to learn from and work with each other.

With the number of startups that have participated in the Y Combinator program, YC has a large alumni network, which has a strong ethos of helping fellow YC founders. These members are often willing to help each other with different kinds of problems, such as needing beta testers, a place to stay in another city, advice about bugs, and connections to particular companies.

Y Combinator's program is grounded by the philosophy that founders are most productive when they are able to spend time building. This becomes the goal of Y Combinator's program—to create an environment where founders can focus on building a project and talking to users. YC aims to interfere as little as possible in the startups it funds; it does not take board seats or many of the powers some investors require.

As well, Y Combinator works to offer advice, often a lot of advice, but does not force any participating founder to take that advice; YC believes this lack of interference helps startups succeed. And YC works to be flexible in order to be a preferred source of seed funding for startups.

Since its founding, Y Combinator has created videos, podcasts, and essays as resources for startup founders. These materials have since been consolidated in a YC Startup Library, and a selection of this content constitutes the core curriculum of Y Combinator's Startup School, an online platform and community for founders.

The Startup School is an online program and community operated by Y Combinator. Through Startup School, participating and potential founders learn how to start a company with help from Y Combinator and its library of documents. The curriculum of the school includes lessons from YC's collected knowledge and advice on entrepreneurship. As well, it allows users to track their startup progress and maintain accountability through weekly updates.

The Startup School also offers participants access to more than $100,000 worth of deals and offers cofounder matching, which works to help find a high-quality cofounder based on stated preferences for background, skills, and interests to build a company.

YC Continuity is an investment fund dedicated to supporting founders as they scale companies with a primary goal of supporting Y Combinator alumni companies through subsequent investments. Less often, through the YC Continuity fund, Y Combinator will invest in non-YC companies.

Similar to YC's early-stage partners, the YC Continuity team has strong operating experience. They work to create opportunities for founders to continue their personal growth and scale companies successfully. The Y Combinator Continuity also operates the YC Growth Program, which brings together founder-CEOs who are leading rapidly growing companies.

The fund works to invest in companies with a strong product-market fit, generally in Series B or later rounds. These investments range between $20 and 100 million in size. The fund has both led rounds and participated as co-investors in rounds led by other VC firms. It does not have strict valuation parameters but looks for companies with clear business models and customer traction.

Operated by the YC Continuity team, the YC Growth Program is designed for founder-CEOs who are leading rapidly growing companies approaching fifty employees. The program focuses on specific issues that startups have to overcome in order to scale successfully while helping founders build relationships with others facing similar challenges. The program requires founders to fill out a short application, and participation in the program is free. There are two batches per year, in the spring and in the fall, and applications to the program are posted a few months before each batch.

In late 2013, Y Combinator introduced the Simple Agreement for Future Equity (SAFE) agreement structure, which has since been used by almost all YC startups and by many non-YC startups as an instrument for early-stage fundraising. The SAFE was introduced to offer a simplified and standard equity process for equity rounds to help both investors and entrepreneurs. This agreement was, in part, meant to remove many of the standard legal fees and legal counsel required during early-stage investments, which SAFE works to partially replace, while reducing the potential losses of control for an early-stage startup. SAFE works similarly to convertible notes but aims to standardize the language in order to increase understanding between parties.

The SAFE offers two fundamental features for startups:

1. It allows for high resolutions fundraising, and startups can close with an investor as soon as both parties are ready to sign, instead of trying to coordinate a single close with all investors simultaneously. It can also offer investors more certainty and transparency into what each side is given and receiving.
2. As a flexible, one-document security without numerous terms to negotiate, SAFEs also saves startups and investors money (in legal fees) and time spent negotiating the terms of the investment. It leaves negotiations down to the valuation cap. And, as a SAFE has no expiration or maturity date, there is no need to spend time or money extending maturity dates, revising interest rates, or related issues.

SAFEs were developed and intended for use by US-based companies and include three versions of the post-money SAFE for those companies. As of March 2021, YC unveiled beta versions of the post-money SAFE and optional side letters for companies formed in Canada, the Caymans, and Singapore.

Initially released in 2013, the first SAFE was a "pre-money" SAFE. At the time of introduction, startups were raising smaller amounts of money in advance of raising a priced round of financing. The SAFE was a fast and simple way to get the first money into the company, with the concept that holders of SAFEs were early investors in the future priced round. As early-stage fundraising has evolved, the original "pre-money" SAFE has now become less applicable, especially as startups are able to raise larger amounts of money as a first "seed" round of financing.

With the changing landscape, YC released the "post-money" SAFE in 2018. In this SAFE, "post-money" refers to the SAFE holder's ownership is measured after (or post) the money is accounted for but still before new money in the priced round that converts and dilutes the SAFEs (usually this priced round is a Series A but can sometimes be a Seed Series). The post-money SAFE has what YC thinks is an advantage for founders and investors: the ability to calculate precisely how much ownership of the company has been sold. It is important for founders to understand how much dilution is caused by each SAFE sold, and it is equally important for investors to understand how much ownership of a company they have purchased.

In a priced round, with post-money SAFEs, three things usually happen in a specific calculated order:

1. All SAFEs convert into preferred shares
2. An option pool is increased to a pre-agreed percentage of the company
3. New money investors purchase preferred shares at the price per share of the preferred stock sold in the round

After step one, YC should, based on the SAFE, own 7 percent of the company. However, the new investors and option pool in steps two and three dilute the YC SAFE and other converting shares, assuming those SAFEs are standard post-money SAFEs. Pursuant to the YC agreement, YC then has participation right to purchase up to 4 percent of the new money securities issued in the financing. If this right is exercised, step three includes YC's additional new money investment. Of note, YC will end up with less than 7 percent of ownership after step three, even if the 4 percent participation right is exercised.

When later funding rounds are conducted, the YC Agreement offers YC a participation right to purchase up to 4 percent of the new money securities. But the agreement caps YCs participation at their then-current ownership if the ownership before the round is less than 4 percent.

Y Combinator also operates Hacker News, a social link-sharing site where users can submit and share news. The front page consists of thirty links at a time, sorted via an algorithm that takes into account upvotes from the community. According to SimilarWeb, the site receives over 20 million visits per month.

Previously known as YC Research, OpenResearch is a non-profit research lab working to provide technology without ownership and working with long time horizons. Before being spun out of Y Combinator, YC Research worked to generate important ideas and organizations through a portfolio of research projects. These research projects continue to be maintained by OpenResearch. At its founding, in 2015, YC Research was started off with a $10 million donation from Sam Altman.

One such project launched in 2016 that drew some attention was Human Advancement Research Community (HARC), launched with the mission to ensure human wisdom exceeds human power, through the free sharing of ideas and technology, which can allow all humans to see further and understand more deeply.

This was to research technology in its broadest context, such as technology for communication, intellectual tools, media, and social systems, but with a focus on areas in which YC Research and individual researchers on the project believed structures that were created today could have the greatest impact moving forward. This included areas such as programming languages, interfaces, education, and virtual reality.

Part of the philosophy of this research was to reject boundaries such as those created between the humanities, arts, and sciences, and reject traditional understandings of good or evil, right or wrong, and instead use these ideas to drive human technologies in thoughtful and ethical direction, with a sensitivity to the relationship between technology and the human condition.